Fed wobbles, stocks stabilise, and we start from square one once again. President Trump has launch yet another attack at Jerome Powell’s Federal Reserve Bank for its observably hawkish approach to US monetary policy. The reserve bank will meet tomorrow to decide whether to raise its domestic interest rates for the fourth time in 2018. Interest rates in the United States of America currently operate within a band between 2.00 and 2.25%. At present the market is still pricing in a 25-basis point hike to the lower and upper bound of this rate following tomorrow’s meeting. However, Trump’s vitriolic attack on the Reserve yesterday highlights just how much popular, political and market criticism there is against this decision:
The interest rate differential between the United States and the rest of the developed world has been the major driver of Dollar strength throughout 2018. However, investors’ confidence and belief that the Federal Reserve will continue to normalise monetary policy beyond present levels is beginning to fade, opening the door to Dollar weakness. President Trump reinforced his attack on Chairman Jay Powell’s persuasion to raise rates today, once again turning to social media:
The criticism has led market participants to question whether the Fed might succumb to the political pressure that the White House is placing upon the supposedly independent monetary policy authority. Unsurprisingly, the threat to the Dollar’s driver of growth led to early selling pressure at market open this morning. However, following two consecutive days of declines within US stock market indices, early positive futures markets and a strong bid on equities at market open in New York supported the greenback and outweighed the concerns on monetary policy. If the Fed does not hike monetary policy tomorrow evening (UK time), the Dollar should be hindered by weakness amidst a glut in supply. Markets at the moment still expect a hike but it is clear from looking further ahead in the curve that they are seriously doubting the commitment of the Fed to raise rates in the coming months. A no-hike could signal the end of peak Dollar strength leading into 2019.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – A revised 2024
Charles Porter
Thu 21 Sep 2023
A revised 2024 The Dollar opens stronger this morning following the Federal Reserve’s decision last night. The decision confirmed interest rates were to stay on hold following this meeting. As we have highlighted following previous decisions, the forward guidance offered by the Chair Jay Powell was once again underwhelming. However, the Dollar’s bid this morning […]
Morning Brief – OECD
Humphrey Percy
Wed 20 Sep 2023
OECD Those fun loving folk at the Organisation for Economic and Cultural Development are at it again by forecasting that the UK will in 2023 stand at the very top of the G7 for….our rate of inflation at 7.2% which is a great deal more than the promised rate by the UK Government for the […]
Morning Brief – GBP
Humphrey Percy
Fri 22 Sep 2023
GBP While the Bank of England’s decision to pause on raising rates by the narrowest of margins with voting 5-4, that resulted in GBP being sold sharply which reflects the market’s view that while inflation at 6.7% looked better than expected yesterday, the effect of higher oil prices and petrol and diesel at the pumps […]
